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Financial Advice

Cryptocurrency: How Advisors Can Get Up to Speed

Education and resources so your clients don't end up knowing more than you.

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Education is the foundation of the financial advisor-client relationship. Advisors need to be educated--not just before they start their practice, but on an ongoing basis throughout their career. In turn, the most effective financial advisors educate their clients, empowering them to make sound financial and life decisions.

However, rapid expansion of the cryptoasset markets hasn’t afforded advisors the kind of grace period for educating themselves on this new and novel asset class that they have had with traditional investments.

In addition, the growth of cryptoassets has been driven primarily by retail investors. That has led to a dynamic where in some cases clients have a better understanding of the asset class than their financial advisors do.

Lack of education on cryptoassets has been a consistent topic of conversation with other financial advisors. Meanwhile, as SEC Commissioner Hester Peirce shared in our recent interview, being well-informed about cryptoassets falls under the fiduciary responsibility financial advisors have to their clients. But as I mentioned in my previous piece about the current regulatory landscape of cryptoassets, there is a steep learning curve when it comes to this emerging asset class.

It goes well beyond knowing the difference between cryptocurrencies and cryptoassets. In this column I’ll outline the broad areas for exploration and provide some reference links for a mix of books, articles, research, and podcasts to help get you started.

Education Zones

  1. The Basics: A foundational understanding of cryptoassets with the ultimate goal of being able to have a conversation with clients. This includes terminology including coins, tokens, centralization, decentralization, blockchain, and DeFi. It also includes understanding the differences involved in bitcoin versus Bitcoin, bitcoin versus ether, and hot versus cold storage. Finally, it includes understanding the important companies and projects being built within the space.
  2. Practice Management: How cryptoassets fit within the advisor's practice. As I discussed in my last piece, there are a number of complexities when it comes to this emerging asset class. Financial advisors need to update the language of their ADVs, ensure they have the proper errors and omission coverage, and empower their client-facing team members to have the proper training and education to discuss cryptoassets. In addition to the regulatory consideration, advisors also need to address billing, reporting, and integration of cryptoassets with their technology stack.
  3. Financial Planning: The decision on whether to trade and allocate to cryptoassets does not influence the financial advisor's need to understand how to address cryptoassets within their clients' financial plans. Cryptoassets have unique tax-planning implications and opportunities, along with recording issues. They also have estate-planning issues that traditional investments and asset classes do not have. Just this tax and estate-planning knowledge alone provides an opportunity for advisors to bring massive value to their clients, to differentiate themselves from their financial advisor peers.
  4. Portfolio Construction: Even if financial advisors decide not to allocate to cryptoassets on behalf of their clients, they will still need to understand how the asset class fits into their clients' portfolios if their client owns these assets elsewhere. If advisors do decide to incorporate cryptoassets into their client portfolios, they will need to consider creating new model portfolios, how to construct those new model portfolios, decide on active or passive management of the cryptoassets, understand the difference between owning the cryptoassets versus using an exchange-traded fund or trust, and how to explain the cryptoasset allocation to clients.

This is hardly an exhaustive list, but it gives an indication of the work that financial advisors have ahead of themselves to get up to speed with cryptoassets.


So where to start?

As with any research conducted by financial advisors, the source of information should always be considered--especially in a new and novel asset class such as crypto currencies.

There are plenty of "crypto-experts" who have been able to build reputations on hype and speculation, making it hard for advisors to trust their messaging. Add to the fact that legacy advisor industry organizations have trod cautiously around education and certification efforts involving cryptosystems, and much of the media coverage treats crypto planning as "hopium."

At the same time, advisors should be sure to be open to different trains of thought--especially opinions that differ from their own--in order to really gain a depth of understanding of all aspects of the cryptoassets space.

With that in mind, here are some resources that I can recommend.

  • "Bitcoin: A Peer-to-Peer Electronic Cash System," by Satoshi Nakamoto. This is the foundational white paper that started it all:
  • Cryptoassets by Chris Burniske and Jack Tatar. This book is widely regarded as the Intelligent Investor of cryptoassets: a staple for those learning about the cryptoasset space.
  • Interaxis and its CDAA certification program. Interaxis has a number of educational videos and articles housed on its website, and the CDAA program is a structured curriculum allowing advisors to learn the basics of cryptoassets and receive a designation in the process.
  • Delphi Digital. Delphi provides users with data-driven research and analysis on the cryptoasset market along with in-depth educational podcasts.
  • CoinDesk. CoinDesk's Learn Center provides an introductory education on cryptoassets and the broader blockchain ecosystem.
  • WisdomTree. Institutional-grade research and commentary on the asset class.
  • Gemini's Cryptopedia. A free platform facilitating the understanding of cryptos, covering everything from basic terminology to specific decentralized finance projects.

Diving into a new and fast-moving asset class like cryptoassets can be intimidating, but not getting up to speed with cryptoassets will leave financial advisors at risk of not being able to meet the needs of their clients and, more importantly, not upholding their fiduciary responsibilities. Beginning with a strong understanding of the basics will prove useful in all aspects of a financial advisor’s practice now and in the future and, using the resources above, advisors can have a clear starting point.

Tyrone Ross is the CEO and Co-founder of Onramp Invest and Founder of 401stc, a storytelling consultancy. He is a graduate of Seton Hall University, and was also a 2004 Olympic Trials qualifier in track and field in the 400 meters. He was recognized by Investment News 40 under 40 (2019), and as a top 10 advisor set to change the industry in 2019. Financial named him as one of 20 people who will change wealth management in 2020. He was recently named as one of Investopedia’s Top 100 financial advisors, and Think Advisor’s 2021 IA25: VIP’s Pushing Advisors Forward. The views expressed in this article do not necessarily reflect the views of Morningstar.

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